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Commodities and Global Compliance: Common Issues and Best Practice

June 25, 2024

How can global commodities firms avoid increasingly costly regulatory enforcement and fraud penalties? FRA’s Toby Duthie and Loretta Rice recently joined HFW Partner Barry Vitou to share a forensic perspective on how commodities firms should shape a proactive compliance approach, as part of HFW’s Commodities Global Compliance Forum series.  

Several factors have contributed to more effective regulatory enforcement in the commodities sector over the past years. We have seen major settlements for bribery and corruption investigations involving Glencore ($1.1bn, 2022), Vitol ($164mn, 2020) and Gunvor ($661mn, 2024), to name a few. Vitou noted that bribery and corruption laws were being strengthened in various jurisdictions, and with every successful conclusion, the enforcement agencies were sharpening their scrutiny further.  

Duthie added that the quantum of fines relative to profit and the cost of compliance obligations (e.g. monitorships, self-reporting) were also reaching new heights. He highlighted the strengthening coordination between jurisdictions and its impact on oversight and enforcement on global commodities traders.

Three Common Compliance Issues

1. Poor documentation practice  

Documenting your compliance processes and decision-making is critical. With the right evidence, you can demonstrate best intentions, methodical compliance enhancement and a willingness to cooperate in the context of an investigation. This may even help reduce penalties, whilst the absence of documentation may make matters worse if authorities decide to punish the failure to keep effective books and records.

2. Inconsistent compliance practices across the business  

Given the global nature of the commodities sector, firms must invest in ensuring that compliance standards are upheld consistently across all business operations. This includes ensuring that internal communications and training are provided across the board, and measures are in place to identify red flags.

3. Leaving red flags unaddressed for too long  

As with poor documentation and inconsistent practices, inability to demonstrate that compliance red flags are acted on promptly can be perceived as a systemic compliance failure.

Risk-Based Approach to Industry-Specific Risks

Risk assessments are the foundation of a strong global compliance program. Rice spoke about the importance of commodities firms proactively recognising industry-specific risks, noting sanctions and ESG as key risks to add to bribery and corruption. Regulators want to see that risk assessments are regularly revised to ensure that they are fit for purpose, factoring in developments in these fast-evolving areas of regulation. How a company tests its controls can also be scrutinised. (Read more about FRA’s holistic, data-driven approach to testing here.)

Contact the speakers for a deeper dive into compliance risks and enhancement:

FRA Co-Founding Partner Toby Duthie

HFW Partner Barry Vitou

FRA Senior Associate Loretta Rice

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